May not end well

As debt-pickled, financially illiterate Canadians get set to spend an estimated $1 billion on weed in the first few months it’s legal, the odds rise that things will not end well. First, this is money that should be chucked away for future needs or retire fat loans, not inhaled. Second, given what’s coming, it’s no time to further addle your brain.

But, wait. This post is not about cannabis, since the last time the subject was (b)roached we were overrun by potheads. It felt like one of those creepy scenes from The Walking Dead. They just kept coming. Who knew a blog about economics, finances and canines would attract so many tokers? Scarier still, is a pro-ganja attitude now so pervasive in society (thanks to T2) that casual and recreational drug use is mainstream – and so reflected in the audience of a pathetic, boring blog penned by a spent paleo? Yikes.

Anyway, here’s why this is happening at a bad time.

It appears NAFTA is dead since Ottawa can’t agree to a deal in which the dairy trade is gutted just before the election in Quebec. That’s where the cows live. If Trudeau throws the farmers under the tractor, he has a big electoral problem. Of course if we don’t sign on with Trump, then he’s made it clear auto tariffs are coming. Good bye to jobs in Oshawa, Windsor, Woodstock, Barrie and Bramalea. (Did you notice Ontario preem Doug Ford spend a day last week at the plowing match? Yes, he’s already running for PM.)

However you cut it, no trade deal with the States – even for a year or two – is awful news for the economy. While it would be absurd not to pen one, the gang in Ottawa has been unable to do so after months of negotiations. It sure increases the odds of a recession here, which brings us to the asset class almost everybody owns.

Residential real estate in most markets is under attack by family debt levels, higher taxes (especially in silly BC), tighter lending regs, economic uncertainty and rising interest rates. Given the fact more of our GDP is hooked to housing than ever before, the inexorable plop in sales and prices could have a big impact on confidence, and spending. In turn, two-thirds of our entire economy depends on that consumer spending, so the implications are clear.

Now, Trump. He has spent his entire presidency so far throwing gas on the American economy. The deep corporate tax cut has plumped corporate bottom lines, fueled equity stock prices and triggered waves of buybacks and M&A activity. The unemployment rate is so low economists call it full employment. We haven’t see this kind of number for half a century. Inflation has jumped to the highest level in 22 years. The White House is building protectionist walls around the States designed to create even more jobs and profits, albeit in an environment of rising wages and prices. And the rolling back of regulations, especially costly environmental ones, has richly rewarded corporate America.

Meanwhile the tax cuts have blown a yuge hole in federal finances, so Trump is on track to preside over a $1-trillion annual deficit – never before seen during a period of economic expansion. This has started to drive the bond market nuts. Yields are rising as the world’s biggest economy piles on the debt while the president pours on the fuel.

So what? So interest rates are going to go up. Maybe a lot.

The Fed’s benchmark rate will increase on Wednesday for the eighth time in a year and a half. The current odds of another increase on December 19th are more than 70%. There are two more anticipated in the first six months of next year, bring the number of hikes to 11. If Trumpenomics is still in evidence then, and Republicans do well in the November mid-term elections, the US central bank will continue to tighten.

Our guys have a 92% track record of following the Fed. Rates have increased here steadily, and three more jumps are expected by next summer. But that could be a best-case scenario. As mortgage expert, Ratespy owner and financial columnist Rob McLister puts it: “If these things did come to pass, inflation and deficit-averse investors would conceivably dump U.S. Treasuries en masse, particularly foreign investors. With that intensity of selling pressure, North American interest rates (which move inversely to bond prices) could blast off like a SpaceX rocket.”

In fact, look at what’s already happening in the bond market. Here’s the yield on five-year Government of Canada bonds, which closely influence fixed mortgage rates.

This is a big deal. Adds McLister: “Given that, and the fact that there’s a 95% correlation between U.S. and Canadian 5-year bond yields, there is at least a chance that Canada’s 5-year yield could exceed 4% for the first time in over a decade. That could result in:

* discounted 5-year fixed rates near 5.50%, a whopping two points higher than today
* the stress-test rate near an unthinkable 7.34%.”

A 2% jump in mortgages is something few people have contemplated or prepared for. Not only would it make renewing a home loan a painful experience and seriously cut into family cash flow, but housing in general could go catatonic. After all, the reason prices soared was cheap money (not Chinese dudes). A whole generation of people is about to learn that real estate is negatively correlated to interest rates.

So, you can prepare, or not. Be the ant or the grasshopper. Fill your TFSA or your lungs.

I’ve had many a conversation with a buddy, who’s a renter, not an owner, that there is zero shame in renting. The secret is piling money in to their TFSA’s so they have money to access once they retire, not worrying if they’ll be able to afford to own real estate.

It will be interesting (and terrifying) to see how the GTA and LM react to the higher interest rates. The odd half completed new house is already starting to show up under court ordered sale in Vancouver. Who would have thought that two years ago. Zolo is already showing a sales to listing of about 5% for SDH in Vancouver. It’s only 9% for townhouses. This is far below the threshold at which prices begin to fall. Even condos are down at 14%. Even condos are entering buyers market territory with 45000+ new units under construction.

I can’t see this ending well under substantial interest rate pressure. If the banks reappraise the properties at a lower value than the current mortgage they may demand that the borrower make up the difference. I doubt there are many people with several hundred thousand dollars in cash lying around for that possibility in the GTA and LM.

The math doesn’t add up. Dump your money in ETFs and US REITS. Why buy a 1 million dollar property now when you can get it for 900000 in one year? If you have a large down payment you can get 5% from REITs and ride Trumps turbo charged debt fueled economy to some capital gains in the nasdaq and s&p 500.

If you have a 250k downpayment at 35 years old and you put it into the s&p500, and get historical returns you will have 4.3 million by the time you are 65.

One wonders when Trudeau will throw Freeland under the bus. With a little over a year to go before the next Federal election…he needs scapegoats.

Anyone else notice that all those “Important” trade issues previously touted to the Canadian media such as “gender wage parity’ and all things politically correct haven’t been mentioned in over a month of NAFTA media scrums?
What an embarassing bunch of amateurs this Liberal $h!tshow has turned out to be.
Freeland toast by Christmas?

Market-leading companies including Alphabet, Facebook and Netflix are changing S&P 500 sectors on Monday, with big implications for investors who use technology, consumer discretionary and telecom index funds and ETFs.

“More than 70% of homes sold in last 30 days selling for 70% of assessed value in #yqr. Not scientific but noteworthy. Also, 88% of condos sold for under assessed value during same period @CityofRegina @ReginaREALTORS @REMAXca #reginarealestate #regina”

Let that sink in for a while. Sales at 70% of assessment, so basically the banks that wrote 20% down mortgages (or the CMHC that guaranteed such) in Regina over the past few years are holding mortgages that are not even fully backed by collateral.

“If the banks reappraise the properties at a lower value than the current mortgage they may demand that the borrower make up the difference. “

In practice, the spread they ask for rises to reflect the fact that the loan is increasingly unsecured, ie: not fully backed by the collateral pledged. So the underwater borrowers probably will get to keep their homes, but they’ll have to eat Krap Dinner for the next decade or two in order to do so. And will suffer substantial opportunity costs as asset classes with inverse correlation to FIRE outperform.

I understand that banks will benefit from the rising rates,

Banks don’t generally benefit from rising rates as they are, themselves, borrowers. So they pay more for their funding, and the assets against which they make loans tend to be falling in price as well. Contemporary monetary policy, ie: raising or lowering interest rates to slow or speed the economy, is largely based on the fact that higher rates inhibit formation of bank capital, which in turn, slows loan growth and hence, aggregate demand. In order to ‘rescue’ the banks in the 2008/2009 financial crisis, the policy response was to lower policy rates at the central banks around the world. So it logically follows that rising rates are not good for the banks.

As I wrote the other day, the TSX Financials (yes Shawn Allen, I was referring to the financials more broadly, not just banks at a 41% allocation in the TSX60) have been the chronic outperformers over the past 30-40 years of falling short and long-term interest rates. It should be expected that the banks will be the chronic underperformers when an opposite set of conditions, that of rising short and long rates, present themselves.

To answer your question specifically, the gold mining sector appears to exhibit significant long-term inverse correlation to long-term bonds. Sectors that invest in long-term assets financed with long-term debt will benefit through rising inflation and depreciation of the real value of their debt obligations. Miners, pipelines, railways, hard-wired telecom carriers are examples that come to mind.

How tiresome it has become to open up the daily newspapers and have to endure page after page of flotsam and jetsam about the cannibis industry. What a crashing bore. Who cares. Why does the media grab hold of some stories and beat on them like a dead horse? Before this it was the ‘me too’ story, also beat to death. It may have been a story that needed to be told, but balance was lacking in the story telling. No telling what damage it has done to young men. No wonder the Jag has to find escape in old classics such as ‘It Happened One Night’. ( Claudette Colbert and Clark Gable. Don’t miss it. Being re-released this fall.)

About this rising interest rate business though……Interesting that the average indebted homeowner takes such a casual interest in the subject. I reckon it has something to do with being in diapers in the years where rates were close to 20%. Young minds simply cannot grasp the impact this would have on the mortgage payment. ( the one they are already struggling with..). I thought their smart phones had calculators? What shock it’s going to be for some people in five years time when they look back and muse, “Omg. I can’t believe in my desperation for real estate I actually stood still on the track in the path of the runaway train”……….

Without tariffs/government subsidies, are our dairy farmers that uncompetitive? I mean, as an average Joe in Ontario, if the US is able to flood our market with cheap milk, the price I pay at the grocery store may go down. And if they are unable to reduce any CDN dairy subsidies, the price of my next auto goes up. Seems straight forward to me.

Also, what kind of a timeline does McLister mention? Given the inflation rate, I had wondered if we would see a half point increase at one of the rate meetings at some point. Sounds like we may.

“#4 Smith on 09.23.18 at 4:53 pm
..
Dump your money in ETFs and US REITS.”

Is there any specific reason why US REITs should be considered (in your view)?

Just looking at the Vanguard REIT fund, its only yielding 3.47% (which isn’t even remotely competitive against T-Bonds at their recently higher yields), and isn’t exactly at a price that could be characterized as being cheap relative to its historic chart.

Correlation, additionally, looks almost perfect with the S&P500 except until Trump entered office and the S&P500 took off.

Am I missing something here? Seems to me that US RE basically has a very tight correlation to the S&P500, so a balanced portfolio, where the idea is to comprise it of inversely or weakly correlated components to reduce portfolio volatility, probably wouldn’t benefit a lot through inclusion of US REITs.

Watch the loonie, they are saying that the response to NAFTA cancellation and auto tariffs should be lower loonie and lower rates.
Picture that combined with higher tariffs on imports/food.

One time food inflation spike of 20 % and then continue with the normal for the last few years 10 % yearly price increases/as the grocery store CEOs just warned?

I am sure that 1-1.5 % generous increase of CPP/OAS combined with some creativity in cat/dog food selection or improved strategy on raiding garbage bins will help the retirees; plus the instant improvement in cardiovascular health due to weight loss.

#11 Investing in Rising Rate Environment on 09.23.18 at 5:12 pm
I understand that banks will benefit from the rising rates, but I have a question for the blog dogs: which other sectors will likely rise?

“#11 Investing in Rising Rate Enivronment on 09.23.18 at 5:12 pm
I understand that banks will benefit from the rising rates, but I have a question for the blog dogs: which other sectors will likely rise?”

Huge percentage of Canadians have mortgages so rates going up means they get squeezed i.e. they pay more for their loans and have to cut in other places

“Scarier still, is a pro-ganja attitude now so pervasive in society (thanks to T2) that casual and recreational drug use is mainstream – and so reflected in the audience of a pathetic, boring blog penned by a spent paleo? Yikes.”

-No it’s not. Just a loud minority of losers trying to cope with their drug addiction. Tax them at 50% to help balance the budget. They won’t complain because they are addicts and not unlike heroin or cocaine junkies. Same group.

#9 When Will They Raise Rates? on 09.23.18 at 5:02

-I still don’t see GTA RE going down. More of the same: condos up because they are all anyone can afford. Then when the price of SFD is within grasp of condo prices, up they will go too. Condos, at that point, will stagnate (but not go down) at the present unaffordable prices.

Garth,
Don’t worry South Africa has joined Canada in legalizing weed.They will now be growing and exporting pot on an industrial scale competing with Canadian Companies( you know the multi billion dollar valued companies doing around a couple million in sales).

Also noticing a 5% price reduction for houses every time the banks increase rates.Looking at a 30%+ reduction in prices in a year from now,25k+ price reduction on every rate increase.Easy money!

“Did you notice Ontario preem Doug Ford spend a day last week at the plowing match? Yes, he’s already running for PM.” I actually noticed you hinted this a few days back in the blog; but at the time I thought it was sarcasm. Is this a fact? Truly curious.

Despite all the portents of trouble ahead, I’ve spoken with two people who have purchased real estate in the LM in the last week, convinced that real estate is a good buy right now and that they will double their money in 5-7 years.

I keep thinking that minister Freeland and her NAFTA trade “experts” (some believe them to be the finest anywhere) are desperately waiting for the Republicans to LOSE the mid-terms.

Apparently something is supposed to be inked by month’s end. But will it? Mexico is ready to go. But where’s Canada?

It seems evident to me, SO FAR, that Freeland and Co. look to be slow-walking trade talks until after said election, so they can shop for a better deal with a Democratic congress, and pretend that Trump’s no longer a threat.

Otherwise there’d be a deal by now after more than a year of feckless talks!

If such thoughts are the case, then that reasoning is folly on a grand scale and the results could be catastrophic for Canada.

THE BIG PICTURE

You see the really big issue is Trump’s trade conflict with China. He’s trying to re-establish American-based dominance in manufacturing. And hitting China with tariffs is designed to bring it to the table. Meanwhile Chinese stock markets have been hit hard because of this process.

Various US administrations basically created a Chinese middle-class on the backs of American workers.

Remember over the past 25 years how many American-based factories were shuttered at “home” and moved across the Pacific, for the cheap labour?

Trump doesn’t want any more of that and keeps on saying so. Thus those tariffs, including ones for the EU, Mexico and Canada.

WHERE CANADA FITS IN

Trump wants those jurisdictions to buy more American-made goods to Make America Great Again. Just that simple.

He also wants bi-lateral deals with Canada and Mexico. That’ll make it easier for him and his successors to change trading arrangements at any time, more control.

THE REAL GOAL: US IMPERIAL EXPANSION

But, I think the US’s real goal here is dominance over its largest imperial threat, ongoing Chinese economic/cultural/military expansion.

To help the US to get there Trump needs full and unfettered access to Canadian and Mexican resources (water included) to fend off its chief competitor.

Call the new arrangement Fortress North America.

This is a world-class turf war with China.

It’s interesting that you don’t hear much bitching about Trump’s NAFTA talks from the Democrats so far.

Why?

Because the Dems must think Trump’s doing their dirty work something that party has tried and failed to do for decades. Didn’t have the guts.

I wonder what the Trumpsters must also feel about the political leadership vacuum in Canada at all levels.

I keep thinking that minister Freeland and her NAFTA trade “experts” (some believe them to be the finest anywhere) are desperately waiting for the Republicans to LOSE the mid-terms.

Apparently something is supposed to be inked by month’s end. But will it? Mexico is ready to go. But where’s Canada?

It seems evident to me, SO FAR, that Freeland and Co. look to be slow-walking trade talks until after said election, so they can shop for a better deal with a Democratic congress, and pretend that Trump’s no longer a threat.

Otherwise there’d be a deal by now after more than a year of feckless talks!

If such thoughts are the case, then that reasoning is folly on a grand scale and the results could be catastrophic for Canada.

THE BIG PICTURE

You see the really big issue is Trump’s trade conflict with China. He’s trying to re-establish American-based dominance in manufacturing. And hitting China with tariffs is designed to bring it to the table. Meanwhile Chinese stock markets have been hit hard because of this process.

Various US administrations basically created a Chinese middle-class on the backs of American workers.

Remember over the past 25 years how many American-based factories were shuttered at “home” and moved across the Pacific, for the cheap labour?

Trump doesn’t want any more of that and keeps on saying so. Thus those tariffs, including ones for the EU, Mexico and Canada.

WHERE CANADA FITS IN

Trump wants those jurisdictions to buy more American-made goods to Make America Great Again. Just that simple.

He also wants bi-lateral deals with Canada and Mexico. That’ll make it easier for him and his successors to change trading arrangements at any time, more control.

THE REAL GOAL: US IMPERIAL EXPANSION

But, I think the US’s real goal here is dominance over its largest imperial threat, ongoing Chinese economic/cultural/military expansion.

To help the US to get there Trump needs full and unfettered access to Canadian and Mexican resources (water included) to fend off its chief competitor.

Call the new arrangement Fortress North America.

This is a world-class turf war with China.

It’s interesting that you don’t hear much bitching about Trump’s NAFTA talks from the Democrats so far.

Why?

Because the Dems must think Trump’s doing their dirty work something that party has tried and failed to do for decades. Didn’t have the guts.

I wonder what the Trumpsters must also feel about the political leadership vacuum in Canada at all levels.

Bernier has linked his political beliefs to libertarianism, an ideology that forms the bedrock of many of the populist governments which have swept into power from the U.S. to Brazil. These movements have been mostly homegrown, though some get ideological and strategic support from a global influence organization known as the Atlas Network, which is partially funded by American industrialists David and Charles Koch.

The Atlas Network connects think tanks around the world and promotes libertarian ideas. Bernier is not endorsed by Atlas, as they don’t directly support or fund candidates, but he and two of his senior staff members have worked at think tanks partnered with Atlas.

Atlas lists the Montreal Economic Institute and Canada’s Fraser Institute among its partners. Bernier served as a VP at the MEF before entering politics and one of his two lieutenants at his new party, Martin Masse, also worked there. Bernier’s other lieutenant, Maxime Hupe, was until recently at the Fraser Institute. Both Atlas and Fraser have received large donations from the Koch brothers….

Well summarized, Garth. Its a bad time for the world to go to pot. We will need our brains for what lies ahead.

There is need for major concern. South of the line we have a president that is more concerned with inflation than systemic stability. Russian puppet, Koch bros puppet, inequality puppet, on all levels corrupt or all of the above, whatever the reasons that drive Trump to trade wars, big tax cuts to the rich, deregulation that kills North America systemically or a simple hate on for those who are inferior (pick a form of discrimination), the rest will have to adjust until Trump is gone.

That may not be so easy. Impeachment will require more than 2/3rd’s of the Senate and a majority congress. As long as the Koch bro’s like their guy (well, privately anyway), impeachment will be difficult.

What we can expect is a rash of firings by Trump after the midterms regardless of the results. Rosenstein will be fired along with Sessions and with them gone, Muller will be gone. The question from there is… how much effect will the leaks have that follow. I am no longer convinced that should evidence surface of Russian collusion or money laundering or any other host of scandals that would sink a presidency will work considering who Republicans are truly beholden to, or how much market share Fox news has in America (34%). No matter how one slices it, we have huge inflationary pressures about to hit the U.S. economy by way of trade wars, isolation, trillion dollar deficits, regulatory changes that are weakening the economic and environmental integrity of the system and they will all catch up in time and with Trump still in power, there is no way to fix it.

Its worthy to remind readers of what set off the GFC and U.S. housing collapse to begin with:

Between 2001 and 2004, Fed rates sat at or below 2% for 3 years and housing boomed. Then rates went up to a high of 5.25% in 2006 and this rate climb kicked off an avalanche of defaults.

What will happen in a historical repeat? We haven’t seen a fed rate above 2% in 10 years and now we are likely to see a fed rate at 2.5% by years end with more hikes to follow, only we shouldn’t be so naïve as to think .5% quarterly rate hikes aren’t coming.

Trump’s trade wars with China, Europe and North America have yet to hit the system. As retailers restock the shock will hit home but there is a lag to such policies. Americans won’t feel the hit on trade wars until the first and second quarters but it will accelerate from there and as it does, so will inflation. We could easily see the U.S. fed rate exit around 4.5% in 2019 and in the 5+% range in 2020 triggering defaults again not just in borrow/spend crazy Canada but the U.S. as well and that means another GFC. With an American economic slump, so goes the world including Canada but we will see our own recession here led by real estate before world economics hit home. Canadian rates follow U.S. rates 92% of the time because our borrowed money for RE comes from Canadian banks borrowing from U.S. treasuries in term loans and making money on the spread.

We’ve got a housing crash of our own coming in 2019, 2020 and 2021 led by zenith valuations creamed from rising rates leading to a full blown real estate led multi year recession in Canada and the U.S. won’t be any help. Trumpenomics is poised to weaken the U.S. substantially, never mind the rest of the western world. Its just hard to say how much right now, there is a lengthy time lag to these policies to know for sure, but my best guess is North Americans are set back at least 2 years and more if we don’t get the right people to replace Trump soon.

May be there is a method to the governments madness in respect to Pot. When the mortgage rates rise high enough may be Canadian debtors will be high enough on Pot that they won’t give a damn when they lose it all to their creditors. Being medicated they won’t revolt or protest.

I dont think its just going to be people buying weed stocks that should be worried.

US Customs is being unusually quiet about how they will deal with Canadians who admit to smoking pot legally in Canada.
There is no love lost between Trump and Trudeau so a clamp down at the border and thousands of Canucks being refused entry for admitting they smoke might not be out of the realm of possibility in the very near future.

Millenials take note. Trudeau may earn you a permanent ban from travel in the US….

Just came down with real estate PTSD today after cycling down by the lake in Mississauga. Saw a sign for sale on a decrepit lakefront property with and snapped a picture of the for sale sign, to check the price online later.

I was immediately accosted by a real estate peddlers who must have been loitering nearby and aggressively spieled on the listing. Found out it’s a tear-down listed at 3.5 million.

And the lake is lined by hundreds of these things.

Where exactly does the money to finance or buy these things come from? I understand there are hundreds of business owners in the GTA, who own medium businesses and might be considered high net worth people, but are there millions of them?

Where do people get the money to put down a $700,000 downpayment and then the credit capacity to finance another 2.8 million?

And if you had that cash, why would you not do something much smarter with it for much better returns?

I am already seeing prices starting to drop and panic starting to set in.

Markham has seen some price drops. North of Markham is also starting to drop for example, a house that was set for 1.2 million was relisted at 900,000 in hopes to attract bidding war only to be relisted again at 1,050,000 since it only got 3 bids, of which one was mine. I am talking about a house that could have easily fetched 1.5 million in 2017. I was called by seller RE agent and was told that the seller would accept 1,050,000 and I said good luck.

I expect to see further drops in fall and hope to get similar house around 850,0000 :) which is still high compared to 3 to 4 years ago.

When you think about it, if the Freeland/Trudeau dream team blows NAFTA into sawdust, the stage is set for a nationwide Canadian stupid test.

After NAFTA is toast, the Auto sector will begin packing up, this is 100% guaranteed. The steel industry is already suffering huge, and losing what remains of the auto sector will be be the death knell for all the wobbly old mills still operating in Canada. A heavily burdened and opposed oil industry, and a paralyzed mining industry cocooned in red tape will remain with no end in sight – leading to a host of (up till now, very patient) companies all along the supply chain from top to bottom finally pulling up the stakes. The contentious softwood lumber industry would lose its biggest customer overnight, and would not survive the time required to find that much new business elsewhere.

So just how insane are Canadian voters? If the worst case scenario plays out with no NAFTA deal which would lead directly to hundreds of thousands of jobs lost – should not Trudeau get routed even worse than Wynne did in Ontario?

It will forever answer all my questions about the future of Canada should a NAFTA deal fail, yet Trudeau get re-elected.

Well Garth, your Blog today the long version (but more fun to read, i.e., MSU) of what I have been predicting using common sense, writing on the wall, for what now, a year or so?

So to all you naysayers:

1. I told you so.
2. History repeats including fear, yet to come.
3. RE 25% avg. price drop before the end of the Qtr.
4. RE 50% avg. price drop by end of 1st Qtr 2019 in bubble cities.
5. Recession same time as (4), actually beginning in earnest near the end of this Qtr but will not be reported until 1st Qtr 2019 – we have a Lefty and challenged MSM in Canada.
6. No NAFTA.

My son views pot legalization as an excellent career move for him. He figures that with that many stoners fumbling and bumbling their way through the work force a non-smoker such as himself has a serious and baked-in perpetual career advantage. More power to him!

On to T2, the most racist and sexist PM Canada has ever known, and may ever know. How can that be? Simple: T2 bases his cabinet decisions on two things; gender and race. Qualifications, merit, ability and experience have no place in the T2’s hu-person addled brain. Why anyone is surprised that a NAFTA deal and the pipeline are in shambles is beyond me. With talent, insight, experience and merit considered passe by the Liberals what else could be expected?

T2 clearly demonstrated that identity politics gets you elected but it leaves you buck naked when you run into real world, hard-ass negotiators that don’t give a rat’s a$$ about whether you live or die.

By any definition, Trudeau’s choices and decisions have been racist and sexist. And just because you may agree with his particular brand of racism and sexism doesn’t mean that it’s OK. All it means is that you actively support racism and sexism. There is no proper way to be racist and sexist. None. Adults get that. Juvenile drama teachers don’t.

What we are seeing unfold here in Canada is what happens when a country lacks leadership. Sadly many are now starting to recognize that nice hair, a famous last name and the ability to dress up in various Indian costumes is of little value on the world stage. But unfortunately it’s too late.
Many of the major files here in Canada are in a shambles.
There is uncertainty as investment leaves the country and heads south. For many investors, Canada is effectively closed for business. It has been shown at many levels that nothing can get done.
The obvious question is how will the government finance all of the goodies it continues to promise
For the sunny ways crowd and the intellectual lightweights we have in office it doesn’t matter because budgets supposedly balance themselves.
They say the people get the governments they deserve. Here in Canada we have set the bar pretty low.
This won’t end well.

#25 BS on 09.23.18 at 5:56 pm
or the first time in over a decade. That could result in:

* discounted 5-year fixed rates near 5.50%, a whopping two points higher than today
* the stress-test rate near an unthinkable 7.34%.”

I doubt the stress test would remain in place once mortgages get to 5%. But 5% mortgages would do the trick on their own. We could easily see prices fall back to where the bubble started in 2003.
*************************************
I see no reason to ever remove the stress test regardless of rate.
Even if rates were 10%, I would want a borrower to be able to afford 12%.

Rates can always go up a little more, so you should be able to afford a little more– This is why I was shocked that the stress test wasn’t always a thing.

Also, the stress test actually has less and less of an impact the higher rates go- As in above example 10% +2 is nothing compared to 3%+2

I find it interesting that successful people smoke MJ and the biggest losers drink beer. I used to enjoy MJ back in the day when it was illegal Jamaican MJ. When it all went underground here and became Hydro I hated it. Really looking forward trying regulated MJ. Alot of criminals are mad its legal.

For years now I have asked why our banks together with CMHC could not have found a way to offer and securitise 25 year locked in (but yet open for early payment) lowish rate mortgages just like in the States.

I believe certain Investors would have (dumbly) snapped up such securities just like they do in the U.S.A.

The long-term government of Canada bond was yielding as low as about 2%. Even today it is only 2.4%.

Investors would have snapped up CMHC guaranteed mortgage backed securities (even though open for repayment by the borrower) at probably less than 3%. Banks could have profitably offered 25 year fixed rate mortgage locked in (and yet open) at no more than 4% maybe even closer to 3%.

And no, it is not the Bank act that requires mortgages to be open after 5 years that prevents this. I am talking American style mortgages locked in rates but open from the git-go – (with some small fee to pre-pay or refinance if rates fell).

If there is a specific legal barrier to this, I have never been able to find it despite some digging. And anyhow, if the banks and CMHC wanted to do it with the support of the government they surely could.

I understand most or all Canadian CMHC guaranteed mortgage backed securities run through CMHC or a related government entity (see Canada mortgage bonds). There is a lack of freedom for the banks and that may be the problem.

Maybe I am missing something but the mortgages I speak of are totally normal in the USA and non existent in Canada to my knowledge. Sad.

They would have been national heros as rates rise. It may not be too late.

I can’t believe there is a single Liberal elite that given the chance, would slit their wrists right about now for the repackaged, “groomed”, rudderless Trust Fund manchild they gave us for a PM.

Mark my words, if there are Auto Tariffs people will throw rocks at him and his Napoleon Complex Minister of Foreign Affairs.

About 3 weeks ago Rex Murphy wrote a very humorous take on T2’s efforts on the Trans Mountain pipeline debacle (sad if you are an Albertan or anyone that realizes the wealth that the oil and gas industry brings to Canada – read it and weep):

The central bankers pump the U.S. stock market to the end of October and they fabricate all the data to make everything “look great” before the midterms November 6th. Did anyone expect anything else? Then the dollar will dive after the midterms and all the data will show the U.S. economy as being weak again.

Facts are facts after the midterms are over the 10 year treasury yield in America will be below the “magic” 3 percent threshold never to rise above that 3 percent mark again. It’s all so predictable its like reading the same fairy tale book over and over again.

“#55 Shawn Allen on 09.23.18 at 7:10 pm
For years now I have asked why our banks together with CMHC could not have found a way to offer and securitise 25 year locked in (but yet open for early payment) lowish rate mortgages just like in the States.”

I’ve discussed this at length with you, but perhaps could offer up a conspiracy theory, in that, our ogilopic bankers most likely themselves lobbied for and wrote the Bank Act provisions that effectively banned >5 year term mortgages. The reason — profit optimization, and a significant reduction of cyclicality in the business of Canadian banks.

The US banking model, of borrowing short, lending long, places US banks into insolvency in fairly short order if long-term mortgage rates turn against them by more than a percent or two unfavourably. The Canadian model is one where the banks don’t really take interest rate risk (the risk is borne by the mortgaged customers!), and hence, rates can swing up and down and Canadian bank spread revenue remains relatively unchanged. Now certainly the NPV of that spread revenue is greater at lower long-term interest rates, and hence Canadian banks perform better at lower rates, but unlike their US counterparts, they do not face the double whammy of having compressed (or even negative) spread, and systemically higher discounting of spreads.

I understand you write a newsletter, loosely based on finding investments with long-term predictable cashflows, owing to methodologies advanced by Warren Buffet, and other dividend/cash-flow based investors. Which sort of investment would you naturally be inclined to prefer — a Canadian bank that predictably takes a 1-2% spread from customers with few systemic business risks, or US banks for which there is substantial volatility in realized net cashflows and substantial leverage to the interest rate cycle?

Hence, it is my suggestion that the reason why the Canadian system is how it is, is simply because the bankers like it that way. The banks have armies of lobbyists and could easily amount a PR campaign if they wanted a change in the regulations that force the contemporary business model. But why give up the cushy business model for one that is prone to crashing and burning every time the curve inverts?

All the marijuana ETF’s will nosedive then in time like what we saw with Bitcoin they’ll come out with ETF’s that are short all the marijuana stocks. What I’m doing is shorting most of the “Canadian” marijuana stocks around Halloween.

I keep thinking that minister Freeland and her NAFTA trade “experts” (some believe them to be the finest anywhere) are desperately waiting for the Republicans to LOSE the mid-terms.

Apparently something is supposed to be inked by month’s end. But will it? Mexico is ready to go. But where’s Canada?

It seems evident to me, SO FAR, that Freeland and Co. look to be slow-walking trade talks until after said election, so they can shop for a better deal with a Democratic congress, and pretend that Trump’s no longer a threat.

Otherwise there’d be a deal by now after more than a year of feckless talks!

If such thoughts are the case, then that reasoning is folly on a grand scale and the results could be catastrophic for Canada.

THE BIG PICTURE

You see the really big issue is Trump’s trade conflict with China. He’s trying to re-establish American-based dominance in manufacturing. And hitting China with tariffs is designed to bring it to the table. Meanwhile Chinese stock markets have been hit hard because of this process.

Various US administrations basically created a Chinese middle-class on the backs of American workers.

Remember over the past 25 years how many American-based factories were shuttered at “home” and moved across the Pacific, for the cheap labour?

Trump doesn’t want any more of that and keeps on saying so. Thus those tariffs, including ones for the EU, Mexico and Canada.

WHERE CANADA FITS IN

Trump wants those jurisdictions to buy more American-made goods to Make America Great Again. Just that simple.

He also wants bi-lateral deals with Canada and Mexico. That’ll make it easier for him and his successors to change trading arrangements at any time, more control.

THE REAL GOAL: US IMPERIAL EXPANSION

But, I think the US’s real goal here is dominance over its largest imperial threat, ongoing Chinese economic/cultural/military expansion.

To help the US to get there Trump needs full and unfettered access to Canadian and Mexican resources (water included) to fend off its chief competitor.

Call the new arrangement Fortress North America.

This is a world-class turf war with China.

It’s interesting that you don’t hear much bitching about Trump’s NAFTA talks from the Democrats so far.

Why?

Because the Dems must think Trump’s doing their dirty work something that party has tried and failed to do for decades. Didn’t have the guts.

I wonder what the Trumpsters must also feel about the political leadership vacuum in Canada at all levels.

A lot of smiling US pols is my guess.

So, it’s now up to our political “betters” to sign that deal good or not. Options and alternatives not looking optimistic at this time.

How come no one mentions a young man chances of becoming a dairy farmer in Canada (zilch )but Auto workers get sacrificed to save them .Any young man can apply to work at a car plant try that plan for a dairy farm .

Yes…Trump has forgotten to mention the deterioration in many downtowns….the American slums……the many people living in trailers…the Mexicans they still rely on to pick the crops….the thousands dying from coal dust.

As to Tricky Dougie…you forgot to mention that he is Toronto’s phantom Mayor.

Wait until the Toronto Council becomes a bastion of the Conservatives Party…which was the real objective of the Mike Harris…..make Toronto huge..and many years later another Conservatives Premier Tricky Dougie declare Mega City dysfunctional as the excuse to have fewer City Councillors to control from Queens Park Fortress…to fight off all those “professional protesters ” …that Dougie won’t let scream….like he did for years.

Garth, the deregulation of marijuana is going to be a non-event. A big nothing burger. The only thing that is going to happen is a lot of people who invested in “marijuana stocks” are going to lose a bunch of money, sort of like how Tesla investors are going to lose a bunch of money.

Anybody who wants to smoke pot already does. Teenagers can get it easier than they can get booze. All legalization is going to do is replace a supply chain that is not taxed and operates in the black market with one that is taxed and requires ID like tobacco.

There may be some increase in consumption due to legalization but it also could go the way of cigarettes and go into a long term decline due to health concerns and the fact that now that it’s legal, it isn’t rebellious.

I do think that people who are investing in marijuana stocks are going to lose all their money. Why wouldn’t Philip Morris or Imperial or Rothschild move into this market? They’ve been pedaling tobacco for over 100 years so they clearly don’t have a moral compulsion to stay out. They’ll be packing that stuff into cigarette blanks the day after the farmers harvest it. In fact, the whole legalization thing may have been a bone to throw to the tobacco industry, who has suffered years of declining sales.

And this stuff about people puffing away their retirement is again very case specific. What’s the difference between buying pot, cigarettes, booze, or for that mater a motorcycle? All of them can get you killed but you have to live a little too. Or gambling. A government that allows VLT’s, lotteries, and casinos is in no position to take a moral stance against plants.

I do not smoke pot. I will not after it’s legal either. I tried it once under peer pressure and it made me so dizzy I almost fell of the ski lift. The high wasn’t worth the near death and nausea. One of the peers concluded maybe a ski hill wasn’t the best place to “learn” how to use it and I should come to a party and sit on a couch. Nope. The experience was so awful I have never had any desire since then.

Next up: legalizing prostitution. This is another area where prohibition has only benefited the criminals. What business is it of the government who is having sex with whom for what purpose? Why is stripping legal but not prostitution? Are they different? Are there strippers who would not prostitute? Is there anyone who would not prostitute if the money was right? It’s the oldest profession on earth. I have never paid for sex, but I have tossed loonies at a stripper before when stag parties were a thing. I think the line is pretty thin. It’s like going 110 km in a 100 km zone. Legalization here would get rid of all the pimps, give control to the sex workers, put it all on the internet thus increasing safety, and also make sure everyone’s income is properly reported. Because it is then being taxed, it will probably also decline. How many women will still want to spread their legs if they have to send half of the proceeds to Turdeau? I’m thinking none so they will double their rates. But then the Johns will probably balk. In an age of free internet porn (porn is prostitution, those people are getting paid to have sex, the camera does not change that fact), a ban on prostitution seems contrived.

Saw a few great detached houses in the online classified listing. They had been posted for several days here in the South Portion of BC. Popular website. Not uncommon to 2-3k worth of clicks when ads are posted on it.

Reasonable price detached house. Not cheap, but not insanely expensive.

Guess how many views it had?

3. Only 3 views.

I have been noticing this for months in BC Classifieds. Hardly any views on anything.

Then I find out both of these particular houses have been price cut several times.

Decent built home. Great curb appeal. Excellent neighborhoods. Lights are out on this market.

@#49 Dolce Vita on 09.23.18 at 6:57 pm
Well Garth, your Blog today the long version (but more fun to read, i.e., MSU) of what I have been predicting using common sense, writing on the wall, for what now, a year or so?

So to all you naysayers:

1. I told you so.
2. History repeats including fear, yet to come.
3. RE 25% avg. price drop before the end of the Qtr.
4. RE 50% avg. price drop by end of 1st Qtr 2019 in bubble cities.
5. Recession same time as (4), actually beginning in earnest near the end of this Qtr but will not be reported until 1st Qtr 2019 – we have a Lefty and challenged MSM in Canada.
6. No NAFTA.

Did I forget anything?

One thing, and to all my naysayers I say:

Go copulate with a duck.
__________________________________

lol, grow up son.
for an old fella you come off as a petulant child.
please keep pontificating though, it is amusing.

I’ve discussed this at length with you, but perhaps could offer up a conspiracy theory, in that, our ogilopic bankers most likely themselves lobbied for and wrote the Bank Act provisions that effectively banned >5 year term mortgages.

***********************************
Wrong. Greater than five year mortgages are not banned nor effectively banned in Canada. They exist. Traditionally they were quite a bit more expensive than the 5 year. I understand that lately there are some pretty good rates out to 10 years. Someone mentioned it in the comments just yesterday I believe.

What the Bank Act does is require all mortgages to open for repayment without penalty no later than five years from the start. Meanwhile in the U.S. mortgages are open for repayment right from the start. And I believe that is why the banks there securitise them. They can’t take that repayment risk. Investors can.

But Mark may very well be right that the Banks simply don’t want to offer the product. In which case it would be up to someone else like the government or CMHC or the opposition parties to push for this.

I am talking about a mortgage product hat might save our economy!! Be part of the solution not an excuse maker.

“Meanwhile the tax cuts have blown a yuge hole in federal finances”…not true , revenue are up 19 billions but spending is up a whopping 243 billions for more then 224 billions more in annual deficit. So the spending is to blame not the tax cut.
But why bother with facts Garth. I enjoy your writing anyway because it’s kind of entertaining and who I am to twist YOUR reality. DELETE ?

NAFTA was bad for Canada when it was introduced and It’s bad for Canada now. The sooner we get rid of it, the sooner we can start rebuilding our industries once the American branch plants all go home. NAFTA sold us to the USA. It is Brian Mulroney’s legacy and is is why he didn’t get re elected.

Trade barriers work both ways. The best thing about hem is they get rid of the US multinationals who took over our industries and made us into a branch plant economy.

Re: fed deficits: delayed currency devaluation. What no one is seeing is the effect of high rates on government debt serviceability.

Raise interest rates and you’re printing money. There is no other way to do it.

As soon as govt borrowing costs go up, the money presses turn on. The USA already spends a trillion more than they collect in taxes each year. Double interest rates and you double the portion of that which is being used to pay the debt servicing costs.

This is inevitable folks.

Babies farts smell really bad.

It makes me wonder if this gets worse when they become kids.

Maybe that’s why our parents always had so many air fresheners in the house. I always thought mom was just off the meds again and having one of her episodes, when all the air wick plug ins showed up.

But maybe it was the digestive gasses slipping freely out of our grass stained rear ends.

You never think about that as a kid. It’s just natural. You become self conscious about it in high school.

Maybe the entire air freshener business is held up by desperate parents trying to fight the ever present digestive gasses of their over active youngsters.

Asked the mighty Google some questions, as I had no idea of the current cost for a gram of weed. Google claims ‘the black market’ currently charges about $10 per gram. At the moment, the legalized medical marijuana cost is estimated to run just over $9 per gram, before tax. That production cost is expected to drop somewhat as customers pile on board – the same as any other product where increased production equals lower pricing – but the tax angle will pretty much ensure that the price per gram will equal the black market price due to taxation. This being the true reason pot has been legalized. The government wants its cut.

It is anticipated legal weed will generate one billion in sales annually. This sounds like a lot, but keep in mind that annual cigarette sales in Canada are over 31 billion – yes, billion with a ‘B’ – per annum. So one billion for weed isn’t an unreasonable sales estimate. The difference between weed & cigarettes is that the price for a cigarette runs about $0.63 cents per whereas a single gram of weed will make one generous spliff or up to 4 very thin ones, so the cost per is much more than a cigarette.

Garth is correct when he states that debt reduction should be a primary goal for indebted Canadians, but anyone who expects users to give up their poison of choice to pay down debt is living a pipe dream. Check out any homeless shelter – despite having literally nothing these folks still find a way to fund their habit if they have one. So I think it safe to say that anyone who does have more than a homeless person isn’t going to give up their drug of choice either.

Regarding the stress test the government/banks have the option of rescinding it. If interest rates continue to rise as anticipated the reason for having the test – to keep those who can’t afford to borrow from borrowing – becomes redundant. If they can’t qualify to borrow because rates are calculated as 5.4% due to the test, logically they won’t qualify to borrow if interest rates are 5.4% without the test.

“Trump could spend what he wants without swelling the deficit if he had the tax revenue to cover it. Would you like me to repeat that, slowly? – Garth”

I will tell you real slow, Garth…
Trump has not much to say about the spending…all those senators ,on both side of the aisle , have so many “friends” to please to get reelected that the spending has to go up. Trump can’t even get a few billions for his wall, that tells you a lot about the power of a president in the U.S.A

#28 Yanniel on 09.23.18 at 6:09 pm
“Did you notice Ontario preem Doug Ford spend a day last week at the plowing match? Yes, he’s already running for PM.” I actually noticed you hinted this a few days back in the blog; but at the time I thought it was sarcasm. Is this a fact? Truly curious.
————————————————————–
Seriously? Is it too much to ask for a PM CPC candidate who is fiscally responsible, can represent the country on a world stage, isn’t an autocratic knob and is definitely neither a yahoo posing with fascist-wannabe cosplayers he may or may not know nor a pseudo-intellectual who sounds like paint drying? And no, not Max either…

Bewildered in Van on 09.23.18 at 6:09 pm
“Despite all the portents of trouble ahead, I’ve spoken with two people who have purchased real estate in the LM in the last week, convinced that real estate is a good buy right now and that they will double their money in 5-7 years.

Family seems to be a consistent driver of this thinking.”

>>>>>>>>>>>>>>>>>>>>>>>

Considering there hasn’t been a single day this month to date, with over 100 sales you must have a big circle of friends. lol

Refugees from GTA and VAN who sold at the top and can afford a 50-150K correction after making a killing of 500k +. Two such creatures moved into my mom’s hood. They are hunkering down in the “cheaper” places til this blows over and they realize they’ve just arrived in the snow belt.

I read the papers ‘one line’. And there is a format to flip pages for those who prefer to view/review in that format.
Wow. Who’s the technological dipshit now?
Guess the smart phone comment hit home, huh?

#23 MF on 09.23.18 at 5:54 pm
“Scarier still, is a pro-ganja attitude now so pervasive in society (thanks to T2) that casual and recreational drug use is mainstream – and so reflected in the audience of a pathetic, boring blog penned by a spent paleo? Yikes.”

-No it’s not. Just a loud minority of losers trying to cope with their drug addiction. Tax them at 50% to help balance the budget. They won’t complain because they are addicts and not unlike heroin or cocaine junkies. Same group.

#9 When Will They Raise Rates? on 09.23.18 at 5:02

-I still don’t see GTA RE going down. More of the same: condos up because they are all anyone can afford. Then when the price of SFD is within grasp of condo prices, up they will go too. Condos, at that point, will stagnate (but not go down) at the present unaffordable prices.

MF

———

You might want to look at condo listings in the waterfront. There are definitely listings coming online priced less than comparables from even several months ago. Prices are coming down, this is supported by data.

As far as your stance on weed – you need to educate yourself on it and get over it. To put weed in the same class of drugs which cause permanent brain damage and physical dependancy is just plain ignorant.

To clarify, I’m against legalizing marijuana in the way it is being. But it’s not some evil thing we need to be so against, we have bigger problems to deal with and this is all a distraction.

#94 – um why? Do you get a hero biscket (hopefully weed type) at your death bed for being a good citizen? …. or something? anything ? do you drink? What’s the diff seriously – it’s a known fact weed is FAR less harmful by miles

#44 renter in Surrey on 09.23.18 at 6:52 pm
the stress-test rate near an unthinkable 7.34%.

————————————————————

my prediction – BoC will not follow US in raising rates, they will remove 2% stress test, and crank up immigration to support demand for housing

so cost of RE will remain at current levels

RE prices must be maintained at all costs, Canada is for sale to the highest bidder
——–
I’m with you, buddy.
About 3,000 moving into Surrey each month.
Every house has 3 cars parked outside.
800 portables in the schools.
The new immigrants will sacrifice everything to own a piece of dirt.

More than 75 posts so far and not a single one speaks to the dangerous (to the dog), stupid, moronic, careless, idiotic way that animal is allowed to hang out the car window. Even only its head out the window is dangerous due to the possibility of an insect or small stone entering the dog’s eye at high speed and then penetrating the brain.

Some people just should not be allowed to own animals. They are as bad as those who shouldn’t be allowed to breed children either.

Pot shuts down your frontal lobe. That’s the last thing Canada needs. We need careful sobriety and the ability to count the cost. Re-electing JT would be national suicide. Like O’Leary said this past week – 2019 isn’t an election. It’s an exorcism.

I don’t know about taking your fill of ants & grasshoppers but out here in B.C. its fill your boots.
Lumber Industry booming. 20% tariff chump change. Their barging up chips from Tacoma to Port Mellon mill.
Aggregate, & lime going down big time. Actually the lime right now is for agriculture but won’t stop because the cement plants will be running low once the American farmer finishing liming his fields this winter.
Vancouver just passed a bylaw allowing duplexes everywhere. Tear down the old toilet & build a brand new state of the art joint with a B&B downstairs & a couple long term renters next door.
There’s so much bread coming into the Lower Mainland that even the rats scraping up the crumbs falling off can get by.
Of course that doesn’t mean its pretty if your poor. I mean you’ll feel the money evaporate off your skin once you cross the mighty Fraser.

“We’re seeing some really interesting dynamics play out in Canada when it comes to consumer debt,” said Matt Fabian, director of financial services research and consulting for TransUnion Canada. “While consumer non-mortgage debt continues to rise, the rate of growth is slowing, and serious delinquency rates are down. This is happening even as some consumers may face pressures from increased costs due to tariffs. Also, interest rates continue to rise, which can often put strains on the consumer wallet. As a result, some consumers may be more cautious in adding to current debt levels as the cost of borrowing increases. However, prior TransUnion research has shown that the impact of rising rates may not be as great as some pundits might suggest. This, combined with growing net worth and low unemployment, point to continued strong Canadian credit performance.”

Man, when did the CBC become so blatantly biased? I used to be just left of center in my beliefs, but the radical left is pushing me further right these days.

The way Wendy Mesley just interviewed Maxime Bernier is ridiculous. Let the man speak and explain the party’s points. Don’t shove falsehoods at him and have him spend all of his time countering those. Her Jordan Peterson interview was almost as bad.

#95 Dee on 09.23.18 at 9:49 pm
Lighten up on maple if nafta is at risk? Even if balanced portfolio?

—————————————–

Loonie is down today with oil up 2 %.

NAFTA exit drives investors out/TSX down and loonie in the low 60-es, considering the debt load and the coming tariffs is something pretty much backed in, in my mind.

There will be much better times and entry points into loonie nominated assets down the road, considering the increasingly likely T2 reelection due to the patriotic spin of his NAFTA follies; new NAFTA won’t happen in the next 5 years and as GT said TSX could take off after the new NAFTA is signed, not gonna happen any time soon as it seems.

The ‘good’ news is that oil is climbing toward $100 which could translate soon to $ 2 per litter at the pump.

One can argue that some resource exposure on TSX is fine, but the rest….

#3 Andrewski on 09.23.18 at 4:53 pm
I’ve had many a conversation with a buddy, who’s a renter, not an owner, that there is zero shame in renting. The secret is piling money in to their TFSA’s so they have money to access once they retire, not worrying if they’ll be able to afford to own real estate.
—————————————————————-
Wife and I are in the same boat. We’d far prefer to own, but given how cheap rent is, we’d rather max TFSA, RRSP, RESP and throw cash in regular old investment accounts. Then have money left over to travel and enjoy life. All while renting a 5 bedroom house in a great neighborhood.

“The way Wendy Mesley just interviewed Maxime Bernier is ridiculous. Let the man speak and explain the party’s points. Don’t shove falsehoods at him and have him spend all of his time countering those. Her Jordan Peterson interview was almost as bad.”

Yes, we feel your pain. So unfair, the MSM and CBC.

PLEASE, get all your conservative and Boomer friends to rally around Maxime. He needs your help, NOW and for the future.

Millennials are so very grateful for people like yourself.
Unlike Andrew Scheer, we do not take you for granted.

#62 Jungle on 09.23.18 at 7:33 pm
And if there is no nafta deal and recession comes, rates will be cut.

Not that simple. – Garth
——————————————————————-
If NAFTA doesn’t happen, and we see a recession, the pressure on interest rates won’t be in the front of the curve where the BOC can control them. It will be the 5y and up bonds where investors will demand higher interest rates. BOC could buy long bonds while cutting front end rates (ala Operation Twist) but there would be a bit of lag to get that program up and running.

Wife and I are in the same boat. We’d far prefer to own, but given how cheap rent is, we’d rather max TFSA, RRSP, RESP and throw cash in regular old investment accounts. Then have money left over to travel and enjoy life. All while renting a 5 bedroom house in a great neighborhood.

—————————-
Given all the wonderful things you mentioned above, can you tell me why you’d “…far prefer to own”? It doesn’t make sense.

It started during the Harper years when he nailed them with cuts.
It accellerated when Peter Mansbridge retired and the milksops in charge couldnt make a decision on who to replace him with so we got …… two visible minority men and a woman…..
The only thing missing at the anchor desk was a crosseyed,balding transgendered dwarf with a speech impedement …I guess Rex Murphy will have to do.

But Im sure the politically correct nondecision decision arrived at by the bilingual staffers infesting every level of the CBC these days made THEM happy. To hell will ratings and popularity.
The govt workers just dont care.

Now that Trudeau is in power they have gone totally left.
The 6pm News will spend 5, 10 , 15 minutes interviewing visible minorities, trangender spokespersons, etc etc etc.
Its nauseating in its one sidedness. Just like Global TV with its one sided pro busines agenda.
I cant wait until a conservative leader is back in power and all the enemies CBC has made in Parilament will come back to roost.

Channel surfing Sunday night at 6pm. CBC Francophone channel in British Columbia was pumping out news stories for its 5000 French only speaking customers.
6pm CBC Vancouver and its 3 million customers?
We got that Disney blockbuster Nemo……

The left wing agenda squandering Billions of tax dollars per year indoctrinating the millenial children with happy happy joy joy thoughts seems to be working if Millenial Surrealist is any indication.
Have another toke and all your troubles will just go away…….

“If any of you still have any delusions that RE isn’t toast, think about how a 7.34% stress test rate will affect the amount people can borrow.”
——————————————————————–

I can’t help thinking that once rates reach a higher level on their own, the stress test will be eliminated. The actual interest rate itself will be enough to “stress” out most people who couldn’t otherwise think of taking on a big mortgage.

I think the current crop of GTA/YVR renters are going to be on their knees thanking the Almighty 2-3 years from now that they were able to resist the pressure to buy in the last few years.
——————————————————————–

GARTH – do they really have to get down on their knees to thank you??????

Wife and I are in the same boat. We’d far prefer to own, but given how cheap rent is, we’d rather max TFSA, RRSP, RESP and throw cash in regular old investment accounts. Then have money left over to travel and enjoy life. All while renting a 5 bedroom house in a great neighborhood.

—————————-
Given all the wonderful things you mentioned above, can you tell me why you’d “…far prefer to own”? It doesn’t make sense.
—————————————————————-
Simple answer: Kids. Elementary school districts are small and if you need to move from one rental to another, it can be tough to find one in the same zone.

Wife and I are in the same boat. We’d far prefer to own, but given how cheap rent is, we’d rather max TFSA, RRSP, RESP and throw cash in regular old investment accounts. Then have money left over to travel and enjoy life. All while renting a 5 bedroom house in a great neighborhood.

—————————-
Given all the wonderful things you mentioned above, can you tell me why you’d “…far prefer to own”? It doesn’t make sense.
—————————————————————-
Simple answer: Kids. Elementary school districts are small and if you need to move from one rental to another, it can be tough to find one in the same zone.
———————————————

Fair enough. I appreciate your honesty. Most owners and renters alike refuse to acknowledge any down sides.

Fair enough. I appreciate your honesty. Most owners and renters alike refuse to acknowledge any down sides.

—————————————————————–
We’ve owned homes in the past, starting with a condo and then a SFD. We have no illusions about the cost associated with ownership. At the same time, our last rental was listed for sale for 10 months, so we know the downsides of renting as well.

If cap rates were at 15 or even maybe 20, we’d own, but the place we are renting is at 36 and that’s typical of the neighborhood and the city more broadly.

I figure its far more important for kids to have parents who aren’t constantly stressed about money, who can build a nest egg and can afford to do fun things like rent cottages in the summer and travel in the winter a bit.

Wife and I are in the same boat. We’d far prefer to own, but given how cheap rent is, we’d rather max TFSA, RRSP, RESP and throw cash in regular old investment accounts. Then have money left over to travel and enjoy life. All while renting a 5 bedroom house in a great neighborhood.

—————————-
Given all the wonderful things you mentioned above, can you tell me why you’d “…far prefer to own”? It doesn’t make sense.
—————————————————————-
Simple answer: Kids. Elementary school districts are small and if you need to move from one rental to another, it can be tough to find one in the same zone.

————————————————————-

This a really good point that single folks have real hard time understanding. I would add pets into the mix as well. When we left the LM we would have loved to have rented in Kelowna for a few years while to getting to know the area. At the time there was literally no inventory in areas with good schools that would take our two dogs.

I think the meme that Canadians are obsessed with RE misses that there are really good reasons to want stability for your family in the form of an owned home.

On the flip side, being single or w/o kids and renting would be pretty appealing to me, that freedom would feel pretty good I imagine.

PLEASE, get all your conservative and Boomer friends to rally around Maxime. He needs your help, NOW and for the future.

Millennials are so very grateful for people like yourself.
Unlike Andrew Scheer, we do not take you for granted.

Thank you for your support of Maxime!
__________

I can’t wait till Trudeau/Jag is in power, and with a shiny majority mandate too hopefully.

This is just what Canadians need. The sooner Canada’s economy is writhing on its back with it’s left rear leg kicking in the air, the sooner things can start getting fixed – and not before then.

Besides – I’m WELL prepared to thrive in the event of a Trudeau/Jag economic carpet bombing. The house is paid for, the portfolio is plump, and it’s damn near impossible to get much in the way of increased taxes out of me.

I do feel bad for the future youth of Canada though. Big debt, no jobs, no savings, no real estate, maybe even no condo. Permanently.

My Gen Z kids will be fine as I will ultimately have them covered (grand-kids covered too maybe). But those millennials will just be screwed till death if Trudeau gets another round…

#114 Fortune500 on 09.24.18 at 2:40 am”Man, when did the CBC become so blatantly biased? I used to be just left of center in my beliefs, but the radical left is pushing me further right these days.”

You sound like a perfect candidate for the #Walkaway movement in the states. (Smoking Man posted about it a while back.)

It was founded by Brandan Straka, a gay man (with movie star looks), who explained in a video why he was leaving the Democrat party, after a lifetime affiliation. Since his first video, many thousands of people — young and old, all races and even people from other nations who’ve left the equivalent of the Democrat party in their own countries — have joined Brandon to tell their stories.

When Rex Murphy left his job as host of Cross Country Checkup, CBC Radio lost the only voice it had to argue the conservative side. That’s when I stopped being a regular listener.

I don’t even listen to CBC’s music programming any more, which was always excellent, and I imagine still is.

I’m not convinced that legal weed will be anything but a boon to the economy. We’re witnessing the creation of an entirely new market – I’m surprised to see that regularly characterized here as a bad thing, particularly on the basis of potential social harm (i.e., “Canadians already have enough ways to destroy their brain cells”). I’m looking forward to Canada leading the way in developing this industry (both recreational and medical) while the majority of US jurisdictions continue to keep their heads buried in the sand.

MF is on MJ fire today.
The “professionals” and midnight jokers I know seem less and less able to form meaningful relationships. They probably should start blogging or something.

World class and paying top dollar for kanos in this area. Hint….flip EliteSpeak around. It’s permanent not temporary:

“The City of Toronto is installing temporary structures as a 24-hour respite site to accommodate a growing demand for homelessness services across the City of Toronto. Work is underway to install a temporary structure at 1155 King St.W in the parking lot behind Lamport Stadium in Liberty Village. The centre is scheduled to open on November 1, 2018.
“

Julie Payette is another one that needs a front kick out the door as she’s basically doing nothing and getting paid for it.

Well, Catherine McKenna also needs free air travel out the door too. We’re paying her 250K/yr to advise us all that Climate Change is sexist. Excuse me? That’s way over the limit. She needs an immediate flight onto the front lawn.

I actually feel a little bad for Freeland – she’s the only Federal Liberal doing anything resembling work, and she is already aging at the speed of light.

Maybe we can just launch Trudeau to the curb – thereby fixing all the other problems simultaneously. :)

#114 Fortune500 on 09.24.18 at 2:40 am sez:
“Man, when did the CBC become so blatantly biased? I used to be just left of center in my beliefs, but the radical left is pushing me further right these days.
The way Wendy Mesley just interviewed Maxime Bernier is ridiculous. Let the man speak and explain the party’s points. Don’t shove falsehoods at him and have him spend all of his time countering those. Her Jordan Peterson interview was almost as bad.
Almost as bad as, So What your saying is …”
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Same here. I was listening to Anna Maria Feminazi the other day interviewing the owner of Harper’s Bazaar magazine (Can’t remember his name). They were taking about Ghomeshi and his recent interview/article. She kept trying to control the narrative and he eviscerated her with logic. She tried to shout him down and he just talked over her. By the end you could tell she was livid.

It was glorious.

Now CBC is back to pushing the metoo narrative since the Supreme Court nomination Kavanaugh thing. Every second interview/news item is about “sexual assault” and how women are so hard done by.

#62 Jungle on 09.23.18 at 7:33 pm
And if there is no nafta deal and recession comes, rates will be cut.

Not that simple. – Garth

The problem with a country cutting its interest rates in the face of a recession caused by a trade deal (or lack thereof with another country) is currency devaluation.

Cut rates, your money is not worth as much. This is simple to understand. Why would someone put their money into Canadian dollars, when you only get a low interest rate? Better to put the money in US dollars, and get a higher rate.

The Bank of Canada is pretty much completely controlled by what the Fed does with rates, just because we have to keep our rates competitive, or our currency will be rapidly devalued.

If US rates go up, Canadian rates have to follow, regardless of what that does to our economy. Doing otherwise will crash our currency.

The NAFTA deal is postponed after the Quebec election.
Trudeau has to choose between Quebec (dairy) and Ontario (cars).
He will choose Ontario, the dairies product will be open to the American.

There’s an interesting Netflix documentary series that deals with what happened in the USA in the late 1990s when they opened up their Dairy industry to international competition and stopped their government subsidized dairy buying operations. The USA used to have a supply managed dairy system similar to ours. The govt bought up and stock piled dairy products, paid a set price to producers and then sold to the consumer.

They got rid of this in the late 1990s and it pretty much destroyed the local dairy industry in the USA. USA dairy farmers need to get around $28.00 per 100 units of milk sold, to be profitable. If the price dips below that, they lose money.

What has happened is with international milk sales coming to the USA, the price went down to about $14.00 per 100, meaning that their dairy operations were spending $14.00 per unit sold just to operate. Translation, they were bleeding red ink.

The documentary is called “rotten” and I believe the dairy one is about the third or fourth one in:

Anyone had the AMRN lotto ticket? Up 230% since Friday. Kid in the office had 29,000 shares. Literally all eggs in one basket. But I guess that’s how millennials roll these days. He asked me if he should hold in case it goes up more.

I told him buy the rumor, sell the news.

$329K cashed in.

Still made a bunch of rookie mistakes like having the stock outside of a TFSA account because too lazy to set one up and didn’t know the benefits of the “RSP thing”.

#149 IHCTD9 on 09.24.18 at 11:27 am
Julie Payette is another one that needs a front kick out the door as she’s basically doing nothing and getting paid for it.
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The governor general is going to be doing whatever it is the governor general does regardless of who is there as long as we are a constitutional monarchy. Say what you will, but at least this one can fly a Cas Evac gunship if we ever need her to…

#44 renter in Surrey on 09.23.18 at 6:52 pm
the stress-test rate near an unthinkable 7.34%.

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my prediction – BoC will not follow US in raising rates, they will remove 2% stress test, and crank up immigration to support demand for housing

so cost of RE will remain at current levels

<<<<<<<<<<<<<<<<<

Scared or desperate??

The Bank of Canada doesn't have anything to do with the stress test. That's OSFI and they oversee the financial institutions (banks). OSFI is only interested in ensuring that the banks are protected and quite frankly, they don't give a damn about the consumer's ability to get a mortgage.

The Government won't do jack because they know that, unfortunately, the financial state of the country is more important than pretty much anything else.

OSFI already knows that too many "homeowners" slipped under the deadline this past year. Those are "homeowners" that knew that they couldn't qualify at the higher stress test rate and will be in trouble. They are also 20% down, thanks to mommy and daddy, and CMHC won't be protecting the banks on those mortgages.

Why in the world do you think that they would withdraw the stress test as rates are going up??? Do you really think that they are going to stop going up? If they do, it will be because of the mother of all recessions so you better hope that they continue rising.

I think the meme that Canadians are obsessed with RE misses that there are really good reasons to want stability for your family in the form of an owned home.

On the flip side, being single or w/o kids and renting would be pretty appealing to me, that freedom would feel pretty good I imagine.
_____

That’s pretty much it. Before I had kids, we lived in an apartment. Easy and cheap.

When we decided to have kids, we bought an old farm with 4 acres so I had room for all my shenanigans, and for the future kids to horse around on.

I will likely move to a smaller place in the future after the kids are gone and retirement nears. But I will still own some cheap vacant land elsewhere that can’t have houses built on it. I’ll put up a shop, or place some strategically located shipping containers. This will be where the toys are stored and the shenanigans occur.

The vacant land would also be a great bug-out location to construct a bunker complex for when the final SHTF event finally pops off. :)

This seems a bit incomplete. The return from today is usually the present yield. Sure, bonds are negatively correlated with equities, generally, but you’re not going to get a big capital gains pop from bonds at such low current YTM. PIMCO has a pretty nice paper that shows that when inflation is more volatile (i.e. unexpectedly higher) than expected, bond correlation with equities goes up and thus doesn’t provide quite the same diversification benefit investors may assume. Food for thought at least.

The vacant land would also be a great bug-out location to construct a bunker complex for when the final SHTF event finally pops off. :)
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Who knew IHCTD9 and Trumpocalypse were one in the same?!

#138 Smoking Man on 09.24.18 at 9:47 am
“[…] NAFTA dead… Inflation and the complete destruction of the Canadian economy.[…]” You seem just giddy with delight! Nothing could make you happier than Trump’s triumph over Canada! What are you? A psycho? Don’t ever come back to Canada, you jackass! :(

168 Gravy Train on 09.24.18 at 2:23 pm
#138 Smoking Man on 09.24.18 at 9:47 am
“[…] NAFTA dead… Inflation and the complete destruction of the Canadian economy.[…]” You seem just giddy with delight! Nothing could make you happier than Trump’s triumph over Canada! What are you? A psycho? Don’t ever come back to Canada, you jackass! :(
…..

It’s a prediction bird brain.. I still have 3 kids trapped in Grorge Soros conquest.

#168 Gravy Train on 09.24.18 at 2:23 pm
#138 Smoking Man on 09.24.18 at 9:47 am
“[…] NAFTA dead… Inflation and the complete destruction of the Canadian economy.[…]” You seem just giddy with delight! Nothing could make you happier than Trump’s triumph over Canada! What are you? A psycho? Don’t ever come back to Canada, you jackass! :(

Ah, so now it hurts Eh, it did not hurt when trolling savers and renters with ever rising real estate market, missing the boat and all the jazz?

#120 Courage and Poo on 09.24.18 at 7:35 am
Weed addicts are going to take over Canada!…. More intolerance on topics of personal freedom.
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Weed addicts don’t even have enough initiative to get out of the basement.

That’s just it, isn’t it. Hope rates continue to go up because going down means recession…. except for the fact that if rates go up to far and/or fast, you get a recession, the system can’t handle the default shock.

Enter inflation. Inflation doesn’t care about the rate or speed of which rates go up, it’s on its own curve (I’ll walk that back a bit, a rate rise is in itself, inflationary but I digress). Inflation has a mind of its own.

Enter Trump, the people’s politician, typically beholden to the special interests that got him there, Putin, Koch brothers, a sprinkle of billionaires, and last but not least, his own special interests in making money legally or otherwise, discriminating against the inferiors, etc., yes, lets not forget about what Trump is interested in.

To appease Putin, the U.S. needs to pull out of NATO, end sanctions against Russia (most are still waiting to take effect, I have to laugh at how much credit Trump takes for it), destabilize the U.S. economy and isolate itself against its allies world wide. Hence, we see de-regulation in financials, industry, the environment, health care, FDA, you name it because it gives the U.S. short term profit gain for long term pain keeping Trump in power to do more damage.

Roll back EPA emissions on cars and smoke stacks increasing oil & gas consumption making the Koch bros happy, only to slowly cripple the economy with inflation, shorter life spans, more disease and higher health insurance in the long term. Roll back pollution standards, same thing. Shorten people’s lives, add more misery to their existence on the way out, strain the systems and I haven’t even remotely begun to mention the ugliest risk to us all, climate change. Roll back banking regs that formerly dis-allow banks to lend to anyone with a pulse, welcome to mass defaults down the road. Short term profit gain, long term loss pain. This is Trump’s world and its looking like the U.S. is stuck with this guy, who officially kicked off a trade war in effect with China today and will double down in an effort to drive inflation because he’s beholden to special interests!

Who does it serve to drive up inflation in a debt leden world? Who does it serve to drive up interest rates? To encourage pollution? To encourage energy waste? To encourage shorter life spans and poor health? Who does this serve? Who does it serve to get out of NATO, to buddy up with dictators, despots and other successful kleptocrats, who does it serve? Who does it serve to start trade wars, pick fights with your allies, end spending on anything good for this planet, who benefits?

Just follow the money.

Kleptocrats, greeders, oil burners, war mongers and anarchists will always be there to cheer it on and some frequent this site. And I’ve named a few. Putin. Koch bros. Along with a bunch of other ass wipe billionaires if one cares to look. Follow the money!!!

But I digress. I haven’t followed Canadian politics much, there’s a reason for that. But when I hear its T2’s fault for not having NAFTA signed at a time when there’s a first time traitor in the oval office, I throw it in the (we gotta make stuff up to get elected) bin largely dominated by opposition parties pining away for power by any means necessary including ignorance and stupid spin, preaching to birds of the same feather.

The question that concerns me most in all of the blended context economics can offer, is this. When does the pain set in?

There is a lag to all government policies. Some effects are immediate like deregulation and change over time, while others are much more stabilizing and therefore, go unnoticed. “Less pollution, better food on our plates, we are living longer, didn’t notice.” Others like free and fair trade (was there ever such a thing) even if its a version of something ball park close can offer prosperity in intangible ways beyond our understanding but we’ll take it for granted. We’ve taken a great deal for granted in North America, including the belief that our politicians, whatever the party, at least served their own nation. That’s all changed.

How can Canada deal with a nation that is led by someone that isn’t loyal to his own people and is beholden by “special interests” to do so? How can Canada deal with a traitor to his own nation? How can Canada come away with a NAFTA agreement with someone who is doing everything in his power to hurt his own nation economically including and especially so with trade?

Why it hasn’t occurred to us all yet, I do not know but Trump is a wrecking ball that knows exactly what he’s doing and the longer he stays in power, the longer the U.S. is set back. When does the pain truly set in?

We are poised to exit the U.S. fed at 2.5% by years end. By the end of 2019, the U.S. Fed rate will be 4 to 4.5% meaning .5% quarterly hikes are on the table. I could be wrong, it could be higher, but the U.S. fed will have to respond to coming inflation from trade wars alone. Btw, this is enough all on its own to create a Canadian recession on its own considering the debt load Canadians have taken on. My very best guess is Canada will enter into a recession in Q4 of 2019 and won’t actually know it until 2020. It only gets worse. The U.S. won’t be far behind, entering a recession in the 1st or 2nd Quarter of 2020. How long it lasts, who knows. Canada’s recession lasts through 2021 regardless of government policy or who’s in power, its already baked in and the U.S. recession could be shorter but that’s dependent on who controls congress and Senate, how quickly Trump is replaced, and by whom. If he isn’t before his 4 years are up, I fear not just for the continent but for the world.

The vacant land would also be a great bug-out location to construct a bunker complex for when the final SHTF event finally pops off. :)
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Who knew IHCTD9 and Trumpocalypse were one in the same?!
____

PREPARE!!!

Gravy Train says our esteemed Mr. Brooks and I are also one and the same.

I hope to keep collecting new secret identities, with the hope that they will appreciate by the time retirement comes. :)

#138 Smoking Man on 09.24.18 at 9:47 am
“[…] NAFTA dead… Inflation and the complete destruction of the Canadian economy.[…]” You seem just giddy with delight! Nothing could make you happier than Trump’s triumph over Canada! What are you? A psycho? Don’t ever come back to Canada, you jackass! :(
______________________________________
He is a sick old man that has no friends other than his twitterbot trolls and no prospects to fulfill life. His children and grandchildren must loath seeing him or are happy that he is in SoCal. He has become much like Statler & Waldorf.https://www.youtube.com/watch?v=AKXlhpeb6wI

#171 Stan Brooks on 09.24.18 at 3:51 pm
“Ah, so now it hurts Eh, it did not hurt when trolling savers and renters with ever rising real estate market, missing the boat and all the jazz?” What are you talking about? Go get some psychiatric help! :)

“….Just a loud minority of losers trying to cope with their drug addiction. Tax them at 50% to help balance the budget. They won’t complain because they are addicts and not unlike heroin or cocaine junkies. Same group.”

I too am all for taxing the crap out of them, however you can’t create a tax that brings a ganja-crash victim back to life.

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The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.